United States v. National Bank of Commerce

PETITIONER:United States
RESPONDENT:National Bank of Commerce
LOCATION:New Mexico State Police Headquarters

DOCKET NO.: 84-498
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 472 US 713 (1985)
ARGUED: Apr 15, 1985
DECIDED: Jun 26, 1985

ADVOCATES:
Albert G. Lauber, Jr. – on behalf of the petitioner
Albert G. Lauber, Jr. – on behalf of Petitioner
Terry F. Wynne – on behalf of Respondent

Facts of the case

Question

Audio Transcription for Oral Argument – April 15, 1985 in United States v. National Bank of Commerce

Warren E. Burger:

We will hear arguments next in United States against National Bank of Commerce.

Mr. Lauber, you may proceed whenever you’re ready.

Albert G. Lauber, Jr.:

Mr. Chief Justice, and may it please the Court:

The question here involves the power of the Internal Revenue Service to levy on a joint bank account where only one of the co-depositors is indebted to the IRS for unpaid taxes.

The delinquent taxpayer here is one Roy Reeves, who owes the IRS about $800.

Roy has a checking account and a savings account at the Respondent bank, titled jointly in his name and the name of Ruby and Neva Reeves, who we understand to be Roy’s mother and wife.

These bank accounts are typical of joint bank accounts in most jurisdictions.

That is, each depositor is entitled to withdraw any amount up to the full outstanding balance from the account, without notice to his co-depositors.

The bank likewise is required to honor any withdrawal request that Roy might make, again up to the full outstanding balance, absent written instructions from the other depositors not to pay.

Arkansas law also provides that the bank’s payment to any one depositor immunizes it from claims by the other depositors to the money thus paid out.

In short, as the Court of Appeals correctly stated, at the time the bank received the notice of levy Roy could have withdrawn any amount he wished from these joint accounts and used it to pay his federal tax bill, and his co-depositors would have had no lawful claim against the bank.

John Paul Stevens:

No, but they’d have a complaint against him, wouldn’t they?

Albert G. Lauber, Jr.:

Well, they might have a complaint against him, and as I will explain shortly, they would have a very similar claim against the IRS.

But that in our view does not negate the fact that Roy had a right to property that the IRS could levy on.

Our position is simply that whatever Roy could do with respect to the account unilaterally, the IRS can do by virtue of its levy power.

And that we think follows from the well-established proposition that–

John Paul Stevens:

Supposing his wife had a big pile of cash at home.

I suppose he could take it and pay his taxes with it.

Could the IRS grab that cash?

Albert G. Lauber, Jr.:

–If his wife had a big pile of cash?

John Paul Stevens:

In their desk drawer at home.

Albert G. Lauber, Jr.:

Well, if the understanding between them was that he had free access to that money, yes, we say the IRS could levy upon it.

But she could then come into court in a wrongful levy action and contend that he misappropriated her funds, but that would be a question as to ultimate ownership.

Here the right to property we’re levying upon is the right to withdraw the money.

Warren E. Burger:

If she publicly acknowledged that he had the right, the same right that she had of access, would that affect your response?

Albert G. Lauber, Jr.:

Well, we think that here the equivalent of that public acknowledgment is in effect, because under state law and the banking contracts involved Roy had the right to withdraw all that money without notifying his co-depositors.

Warren E. Burger:

So that’s the equivalent of the other public acknowledgment?

Albert G. Lauber, Jr.:

I think you could put it that way, yes.

Since Roy had the right to get the money, we have the right to levy upon the money.

Lewis F. Powell, Jr.:

But under state law who owned that money?

Albert G. Lauber, Jr.:

Well, the question of who owns the money in the ultimate sense is a matter of state law, and that would be determined after the levy in a post-seizure hearing, either an administrative hearing or a wrongful levy action.

Lewis F. Powell, Jr.:

Are you saying that the ownership is immaterial to the right of the Government by administrative levy to take it?

Albert G. Lauber, Jr.:

Well, the question… the resolution of all possible competing claims to the property is irrelevant at the levy stage of the proceeding.

Lewis F. Powell, Jr.:

As long as he’s got some property interest.

Albert G. Lauber, Jr.:

As long as he’s got the right to pull that money out and write a check to the IRS for it, that’s right, he has a right to property.

Byron R. White:

That’s what you’re levying on.

Albert G. Lauber, Jr.:

That’s what we’re levying on, his right to withdraw the money and pay it to the IRS.

Sandra Day O’Connor:

Mr. Lauber, if you’re right and there are post-levy remedies available, I assume they’re only available to the person who says you’ve taken my property, and that individual would have to initiate any judicial proceeding or request for administrative review?

Albert G. Lauber, Jr.:

Well, it depends.

The wrongful levy action would be brought by a third party claimant.

That’s not available to the taxpayer.

Sandra Day O’Connor:

No.

But what I’m saying is there are other people here who claim they own part of this money.

Albert G. Lauber, Jr.:

Right.

Sandra Day O’Connor:

A mother and a sister, perhaps.

It would be up to them to initiate any post-levy judicial action or request for administrative review.

Albert G. Lauber, Jr.:

Exactly.

Sandra Day O’Connor:

Now, how would they even have notice of it if there’d been a levy?

I mean, what real protection is there for these people?

Albert G. Lauber, Jr.:

As this Court noted in the Rodgers case a few terms ago, the Revenue Code does not require the IRS to notify potential third party claimants of a levy on the taxpayer’s property, and in fact the IRS does not notify them because it typically can’t know who they are.

And the lower courts have held there’s no constitutional duty of the IRS to notify such people.

But nevertheless, in real life they would find out.

First of all, state law, state banking law or state banking regulations might well require the bank to notify depositors, co-depositors, of a levy on the account.

Even absent a requirement of state law, most banks I would think in following customary business good practice would notify co-depositors.

William H. Rehnquist:

They’d find out rather dramatically when they tried to draw a check on the account.

Albert G. Lauber, Jr.:

Well, that’s the ultimate thing, is these people, one presumes they know.

You don’t lightly open a joint bank account with somebody.

Presumably it’s either your spouse or your friend or someone, and you’ll find out about it.

You write a check and it bounces, or you have the statement showing it.

William J. Brennan, Jr.:

All of the claims I gather could have been resolved if the Government, instead of an administrative levy under 6331, had brought a judicial suit under 7403, would it not?

Albert G. Lauber, Jr.:

Well, that’s correct.

William J. Brennan, Jr.:

I mean, the Government… if you had done that, all parties with claims would have been made part of the suit.

Albert G. Lauber, Jr.:

If we had sought to foreclose our tax lien on the joint account–

William J. Brennan, Jr.:

Tell me, how long has this administrative levy procedure been followed by IRS?

Albert G. Lauber, Jr.:

–Since the Revenue Code was enacted, and it was in existence even before the income tax law.

William J. Brennan, Jr.:

Well, is Bittker wrong when he says as late as 1981 that resort to the administrative levy was rare?

You’ve given us some statistics in the brief indicating the volume of the administrative levy today, but what was it 10, 20 years ago?

Albert G. Lauber, Jr.:

As I understand it, the IRS has routinely used levies as the primary collection device for many years, because it’s always been the most efficient way to collect taxes, particularly when you have a bank.

William J. Brennan, Jr.:

You think Bittker’s just wrong factually when he said that?

Albert G. Lauber, Jr.:

Well, I’d hate to say that.

But without–

William J. Brennan, Jr.:

That’s what he says.

You have to, don’t you?

Albert G. Lauber, Jr.:

–If that’s what he says, I’d have to say he’s–

Thurgood Marshall:

I know it was true 20 years ago.

Albert G. Lauber, Jr.:

–In any event, now things have changed.

Typically today–

Thurgood Marshall:

Well, I’m just curious.

If it was rare and you didn’t resort to it, I take it most resort must have been to 7403.

What suddenly changed the practice?

Albert G. Lauber, Jr.:

–Well, Justice Brennan, again, I don’t… it has always been my understanding that levies have been since time immemorial the primary collection device.

I think that the number of them have increased recently because now it’s all done by computer.

The computer generates the notice of levy to the bank.

William J. Brennan, Jr.:

It gets all messed up, too, doesn’t it?

Albert G. Lauber, Jr.:

It’s like in Philadelphia.

But I think now the IRS serves literally millions of levies every year, and about a third of them go to banks.

Lewis F. Powell, Jr.:

Mr. Shapiro, if I understand your argument, the other two parties who have an interest in this joint account, the mother and sister, would have to bring sort of an action against the United States to recover whatever amounts of the account they own.

Is there a statute that authorizes them?

Albert G. Lauber, Jr.:

Well, they have an administrative remedy and a judicial remedy.

They can file a claim with the IRS demanding return of the property.

Lewis F. Powell, Jr.:

There is an administrative remedy?

Albert G. Lauber, Jr.:

Yes, there is.

In Section 63–

Lewis F. Powell, Jr.:

That may be in your brief.

Albert G. Lauber, Jr.:

–43(b) of the Code.

And if the IRS doesn’t grant relief that way, then they go to court in a wrongful levy action against the Government.

But let me point out–

Lewis F. Powell, Jr.:

Which is authorized by statute?

Albert G. Lauber, Jr.:

–By statute.

That was the provision Congress made for determining these ownership claims.

Let me point out the similarity of that remedy to what they would have if Roy himself had just withdrawn the money.

Say Roy wrote a check for the whole balance in the account, as he was entitled to do, and he used it to pay for his groceries or his gambling debts or his tax bill.

Had he done that, Ruby and Neva would have had to file a claim in state court for return of the money, contending that Roy wrongfully spent money that was theirs.

But the Revenue Code gives them an identical remedy in the levy context, except that it runs not against Roy, but against the IRS, which steps into Roy’s shoes.

They can file a claim with the IRS or go to court to get the money back.

So they’re no worse off at all.

They simply have a different defendant in their action for return of the funds in question.

John Paul Stevens:

Do they have to prove the levy was wrongful?

Albert G. Lauber, Jr.:

It is our position, and I think most courts have so held, that the plaintiff in a wrongful levy action, like any plaintiff in any civil action, has the burden of showing that the levy was wrongful.

John Paul Stevens:

And your contention is that this was not a wrongful levy even if they owned the money, isn’t that right?

Albert G. Lauber, Jr.:

Well, our contention would be that in that action, that if on the face of the account Roy had the power to withdraw all the money and pay it to the IRS–

John Paul Stevens:

Therefore the levy was not wrongful.

Albert G. Lauber, Jr.:

–Right.

John Paul Stevens:

Even if they owned the money.

Albert G. Lauber, Jr.:

It would be up to them to prove some facts–

John Paul Stevens:

It wouldn’t do them any good to prove it, is what I’m trying to suggest, because if the levy is not wrongful they have no remedy against you.

Albert G. Lauber, Jr.:

–No, if they can show that the property was not Roy’s property, but rather their property, that would make the levy wrongful.

Even though he had authority to withdraw it?

Albert G. Lauber, Jr.:

Yes.

That would have to be their contention, that even though he had the authority to withdraw the money, they had some understanding between themselves that it was really their money.

William J. Brennan, Jr.:

If they proved that would they prevail?

Albert G. Lauber, Jr.:

If they could prove that the money he had the right to withdraw was in fact theirs, they would prevail on the wrongful levy action.

William J. Brennan, Jr.:

Against the Government?

Albert G. Lauber, Jr.:

Against the Government.

But that’s what they’d have to prove against him if he withdrew the money.

Byron R. White:

Well, the way… I suppose the way they would prove it is saying that, if we sued him in a state court, we would win.

Albert G. Lauber, Jr.:

Exactly right.

William H. Rehnquist:

Your position here is that the administrative levy allows the Government to levy on property which it could not retain in some instances defending a wrongful levy action?

Albert G. Lauber, Jr.:

That’s right.

It’s not that we know we can’t retain it, but there’s a possibility that there may be other claims to the property, either known or unknown, which might prevent us from ultimately holding onto the property.

It’s a provisional measure.

William H. Rehnquist:

You think the law permits you to become a stakeholder of the property against the will of anybody who has an interest in it?

Albert G. Lauber, Jr.:

Well, this Court has said as much.

The Court has said time and time again that the need for swift collection of the federal revenues means that property rights must yield provisionally to governmental need.

And the point is, the IRS must levy on the property, get the funds secured and the revenues protected, and then people can fight out about who really owns it.

But in the meantime, the Government has the funds in hand so that they cannot be depleted by the taxpayer or his fellow depositors.

Thurgood Marshall:

In this case was the amount of the levy the exact amount that was in the bank, as usual?

Albert G. Lauber, Jr.:

It was somewhat less.

I think the total on deposit was $1500 and we levied on $857, which was Roy’s tax liability.

So we didn’t get all of it?

Thurgood Marshall:

You didn’t get all of it this time?

Albert G. Lauber, Jr.:

Just a little over half.

William H. Rehnquist:

When you say the Government has the funds in hand, does the Government take the money at that time and pay it into the treasury, so that the winner in a wrongful levy action has to file a claim against the Government, or does the Government actually hold the money in the bank?

Albert G. Lauber, Jr.:

I believe the practice is for the bank to pay over the money to the IRS, and what the IRS does with it, frankly, I’m not sure.

But it would be incumbent on the third party claimant to file a claim first with the IRS to get the money back.

And they can simply issue it.

They don’t have to go and get an appropriation.

They can just issue the money back.

If they find the levy was wrongful, i.e., not on the taxpayer’s property, they can simply refund that or credit it to the third party claimant.

Thurgood Marshall:

But doesn’t that money go right straight in the treasury, right straight?

Thurgood Marshall:

Doesn’t even slow down at IRS?

[Laughter]

Albert G. Lauber, Jr.:

Well, it does in the sense that if it’s in a bank account of the local IRS office it is notionally in the treasury.

But it doesn’t like get mailed to Washington.

The funds are there to be paid out by the local district director if he determines, upon a claim by the third party–

Thurgood Marshall:

Well, all I know is that in a similar case up on the Second Circuit they told a certain judge that he didn’t know where the money was.

The IRS man said that.

Albert G. Lauber, Jr.:

–Well, that is not inconceivable to me.

Thurgood Marshall:

Is that normal?

Albert G. Lauber, Jr.:

But the point is, if the third party claimant comes in with a claim for the money and can show that this money didn’t belong to the taxpayer, he will get the money back immediately, with interest if appropriate.

Our position in this case reflects the well-established proposition that the IRS in a levy proceeding steps into the shoes of the delinquent taxpayer.

That is, the IRS can do whatever with respect to the account that the taxpayer himself could do.

Here, because Roy had the power–

John Paul Stevens:

Can it do what the taxpayer could not do lawfully?

Albert G. Lauber, Jr.:

–But he could do it lawfully, because he had the right–

John Paul Stevens:

If the money belonged to the co-depositor, he could lawfully appropriate it to his own use and pay one of his own bills?

Albert G. Lauber, Jr.:

–But all the law gives them would be a claim in state court against him.

John Paul Stevens:

You’d consider that lawful conduct if someone does that?

Albert G. Lauber, Jr.:

If he has the right–

John Paul Stevens:

You and I have a joint account, and the money in it happens to be yours because I haven’t made a deposit for a couple of years.

Can I lawfully withdraw that and spend it to pay my own bills?

I can lawfully withdraw it, but can I use it to pay my own bills?

Albert G. Lauber, Jr.:

–I think you’d probably have… it’s our position that you can.

You may have to fight it out under state law whether you violate some understanding with your co-depositor, but you certainly have a claim to do that.

You have a right to withdraw the money.

No one can stop you from withdrawing that money from the account and spending it, and all the co-depositors have left is a claim against you to show that that was improper, that it was their property, not your property.

William H. Rehnquist:

The bank discharges its liability by issuing the money to the drawer, doesn’t it?

Albert G. Lauber, Jr.:

Exactly right.

And state law provides that once the bank pays the withdrawer, here Roy, they are immune from claims by the other depositors to the funds paid out accordingly.

And therefore, the bank’s most logical course of action is to pay out in response to the levy and simply have its duties at an end, and then the third party claimants can fight out in a wrongful levy action or a claim for credit as to who ultimately owns the property.

Albert G. Lauber, Jr.:

But the point is, because Roy had the right to withdraw the money from the account and pay it to the IRS as the Court of Appeals found, we have a right to levy on the money and require the bank to pay us directly, rather than paying Roy.

John Paul Stevens:

May I just ask one other question.

You have said that the person who may turn out to own the money, other than the taxpayer, has a wrongful levy action against the Government, even though you acted within the statute.

Is there any case so holding, that the third party can recover on a wrongful levy theory what you are saying here is a proper procedure for the Government to follow?

Albert G. Lauber, Jr.:

Justice Stevens, every case would be of that type.

What one must keep in mind is the distinction between a levy, which is a provisional remedy… all the levy does is say, you have a right to the property, we are levying on the property pending further determination.

John Paul Stevens:

Well, we put it in the bank now.

Albert G. Lauber, Jr.:

Okay, the funds have been escrowed, in effect.

And that doesn’t determine any rights to the property, to ownership of the property.

The fact that the IRS levies on it doesn’t mean that it will get to keep the money.

That depends on whether another claimant can come in and prove under state law that they really owned that portion of the money.

John Paul Stevens:

My question is are there any joint bank account cases in which the co-owner of the account, on facts as we assume to exist here, has been able to recover the money from the Government on a wrongful levy theory?

Albert G. Lauber, Jr.:

I’m not aware… this is not litigated very often because until the decision below nobody ever dreamed of, no bank ever dreamed of declining to honor a levy on a joint bank account.

John Paul Stevens:

Maybe no IRS person ever dreamed of making such a levy, either.

Albert G. Lauber, Jr.:

No.

We have, the IRS has figures that we levy on about 200,000 joint bank accounts every year.

John Paul Stevens:

Well, but what is the source of that information?

You put that in your brief, but that’s not in the record in this case, is it?

Albert G. Lauber, Jr.:

No.

We got that from IRS files.

John Paul Stevens:

Yes, but how do we know how reliable that is and whether they’re all cases just like this?

This is rather unusual, to come up with this much detailed evidence, that you rely on very heavily, not a word in the record about it.

Albert G. Lauber, Jr.:

Well–

John Paul Stevens:

And treatises that say the contrary prior to 1981.

Albert G. Lauber, Jr.:

–There is no… the figures we have given are derived from IRS files, and our office traditionally consults our clients in litigation, and typically in the petition for certiorari, to show how important the case is administratively, we do put evidence about the number of cases pending, the number of cases raising the issue, to show how important the case is.

John Paul Stevens:

That’s all a matter of public record.

None of this is a matter of public record that I’m aware of.

Albert G. Lauber, Jr.:

Well, I’m not sure of that.

I think probably there is publicly available information about the number of levies the IRS issues every year.

They couldn’t tell you who the people were because of privacy.

John Paul Stevens:

How many of them are joint accounts and how many of them are joint accounts where they’re not joint taxpayers; there are all sorts of varieties of facts.

Albert G. Lauber, Jr.:

Well, I don’t know if that’s publicly available or not, or whether it could be reached through, the statistics could be reached by an FOIA request or something like that.

Lewis F. Powell, Jr.:

You say you can’t recall any specific case.

I understood you to say, responding to my earlier question, that there was a statute that authorized in this case the mother and sister to bring some sort of administrative procedure to recover their property.

Albert G. Lauber, Jr.:

There is.

That’s Section 7426.

Lewis F. Powell, Jr.:

7426.

Albert G. Lauber, Jr.:

Of the Revenue Code, which provides a wrongful levy action in district court for a third party who contends that the Government has seized property of his for another’s taxes.

Section 6343(b) provides the administrative relief.

What Justice Stevens asked me was whether I could give him cases where people had actually invoked this remedy in court and succeeded.

The only case I’m aware of, because as I said it hasn’t come up a great deal because people didn’t litigate about this until the decision below, is a district court case called Douglas v. United States.

We cite it in our brief.

That was a situation where the mother, a mother and her son had a joint bank account and the IRS levied on the account to satisfy the son’s liability, and the mother brought a wrongful levy action, I think some three years later, and her case was dismissed because she failed to comply with the statute of limitations on a wrongful levy action.

And so she did not succeed, but she could very well have had she brought her suit in a timely fashion as Congress provided.

Lewis F. Powell, Jr.:

The statute requires her to prove two things, as I read it: one, that she had an interest in the property; and two, that the levy was wrongful.

They’re separate requirements, separated by an “and”.

Albert G. Lauber, Jr.:

Well, though in reality it’s the same thing, because the way you show the levy was wrongful was to show that the levy was made upon property that did not belong to the taxpayer.

And the way you show that is by showing that the property really belonged to you.

William H. Rehnquist:

But that’s your version of it.

What Justice Stevens is reading suggests that it’s a twofold requirement.

Albert G. Lauber, Jr.:

Well, a levy I guess could be wrongful for other reasons than that it was made on property other than the taxpayer’s property.

The tax assessment could be invalid, the underlying assessment could be invalid, and there could be other defenses like that.

But among the ways you can prove a levy is wrongful is to show that it is not on the taxpayer’s property.

And in a joint account it’s a zero sum game; it’s either his property or your property.

There’s nobody else in the picture.

William H. Rehnquist:

Many levies that turn out ultimately to be wrongful under your view of the statute were nonetheless proper when administratively made.

Albert G. Lauber, Jr.:

Right, because we were levying on the right to property which may have been subject to other competing claims by other people.

Sandra Day O’Connor:

It just seems so circular as you phrase it in that way.

If somebody, if the third party claimant has to prove that it’s wrongful and the way you prove it is that that person in fact owned the money, then I don’t understand why the statute doesn’t tell you in the first place that the Government can’t get it.

Section 6331 says that the administrative levy can be made upon property and rights to property belonging to the taxpayer.

Sandra Day O’Connor:

And if it didn’t belong to him, then how do you have the authority?

Albert G. Lauber, Jr.:

It belongs to him because he has the right, subject to possible claims by other people, to withdraw that money and pay it to the IRS.

Sandra Day O’Connor:

But that depends entirely on looking at the question as to against whom did the taxpayer have the right.

The bank certainly had the right to pay it over, but the taxpayer didn’t have a right to take all the money as against his mother and sister or wife and mother or whoever it was.

Albert G. Lauber, Jr.:

Well, he may or may not, depending on what they can prove.

And the point is, the scheme Congress set up is that the IRS will levy provisionally on a right to property even if there is some dispute about who really owns it.

That way the funds are secured.

Then there will be a post-seizure hearing–

Sandra Day O’Connor:

Well, the problem is that the statute, the statute, Mr. Lauber, is not written as though it’s a provisional remedy.

It says you can levy if it’s property or right to property belonging to the taxpayer.

Albert G. Lauber, Jr.:

–Well, the way we interpret those words… maybe it would be useful to go back to this Court’s decision in United States v. Bess, where that involved a levy on the cash surrender value of a life insurance policy.

And the Court clearly held that the right to compel payment of a sum to one is a right to property, and therefore, because the insured during his life could have compelled the insurance company to pay him the cash surrender value, we could levy on that.

Now, I should point out that in that situation other people could very well be prejudiced, because if we levied on the cash surrender value and got all the cash out the policy would be at an end.

The beneficiaries of the life insurance policy would get no proceeds if that person thereafter died.

So the fact that there may be other third parties who have a claim to the money… there it was an inchoate or contingent claim–

Sandra Day O’Connor:

But isn’t that an unenforceable expectancy, if you’re just designated as a beneficiary of a life insurance policy, whereas here what the third party says is, I own it.

It’s not an expectancy.

Albert G. Lauber, Jr.:

–But the reason Congress decided that it was better to defer these ownership disputes to a later stage is because the IRS would have a very difficult time proving in every levy proceeding who owned the ultimate… who are the ultimate owners of the property.

Who owns the money in a joint bank account may depend on who put the money in, who took it out, whether it’s used to pay for the husband’s shoes or the wife’s dresses.

The IRS could never prove that.

Thurgood Marshall:

And when in doubt, seize it.

Albert G. Lauber, Jr.:

Well, there is a certain presumption to that effect as well.

But the point is that the people who have the ability to show who owns it is the taxpayer.

The IRS cannot know what deals co-depositors have made.

William H. Rehnquist:

Under your theory, it’s really two different property analyses.

The property that you levy on at the time of the administrative levy is not the same property that you’re talking about in the wrongful–

Albert G. Lauber, Jr.:

Well, that may be a good way of putting it.

We’re levying on a right to property.

William H. Rehnquist:

–But then how can that sort of a levy ever be termed wrongful, because there’s no question that the man had the right to withdraw?

You don’t need a proceeding later to decide that.

Albert G. Lauber, Jr.:

But although it could be that, although the person has a right to property, he may not have full ownership of the property in the ultimate sense, other people can show they have competing claims to it.

Sandra Day O’Connor:

It would be perfectly logical to reach the result you’re asking if the only remedy the third party claimant had was a remedy against the taxpayer himself for someone misusing it.

But when you conceive that there’s a remedy against the Government for wrongful levy, that’s where it seems to get sort of circular.

Albert G. Lauber, Jr.:

Well, it’s not really circular.

It’s just the point at which you have a full-blown hearing about who owns what, and what Congress has determined is that the levy secures the property and that there’s a post-seizure hearing initiated by the third party claimant to flush out all the state law issues about who the ultimate owner is.

Byron R. White:

What if the taxpayer writes a check to the IRS and pays his bill, his tax bill, out of the joint property, and it exhausts the account?

Then does the third party have any kind of a remedy against you or what?

You’ve cashed the check and applied it to his tax bill.

Does the third party then come in and say: look, this fellow paid his… wrote a check and paid his bill out of the joint account, but we want it back because it didn’t all belong to him?

Albert G. Lauber, Jr.:

I think there there would be no remedy against the Government.

It would be against Roy.

Byron R. White:

So you think the reason they have a remedy under the levy, in the levy situation, is because Congress says they do?

Albert G. Lauber, Jr.:

And because IRS has now taken the money.

That’s why the remedy is against–

Byron R. White:

Well, they’ve taken the money, but you may have applied it to his tax, and why is it any different situation than when he wrote a check and delivered it to you?

It’s because Congress apparently has provided a remedy for a wrongful levy.

Albert G. Lauber, Jr.:

–Well, I think you’re right.

I think it would be logical to think that, even after a wrongful, apparently wrongful levy, the third party might still possibly be able to sue the co-depositor taxpayer in state court on a theory that he was the beneficiary of this payment because it was credited against his tax bill.

Byron R. White:

What makes you think that the taxpayer has the right to withdraw this money?

Albert G. Lauber, Jr.:

Well, the Arkansas statutes, banking statutes, give each co-depositor the right to withdraw money from the account.

Byron R. White:

Well, I know, but–

Albert G. Lauber, Jr.:

And the bank must pay, absent notification–

Byron R. White:

–But you wouldn’t… you also concede, though, that that right doesn’t give him a right against his co-depositor, his co-owner of the account?

Albert G. Lauber, Jr.:

–That’s right.

He has a right vis a vis the bank to withdraw all the money.

Byron R. White:

So he has breached his duty to his co-depositors.

Albert G. Lauber, Jr.:

He may or may not have, depending on what–

Byron R. White:

Well, let’s assume he has.

Let’s assume he has.

Then he had no right, no right to withdraw the money.

Byron R. White:

The bank is off the hook, that’s true, but that’s the only reason for the provision in the Arkansas law.

But he really had no right to all that property at that time.

If he did, the third party could never recover.

Albert G. Lauber, Jr.:

–Well, but he had a right vis a vis the bank to get the money in his hands.

Byron R. White:

All right, he had the right against the bank.

Yes, he had the right against the bank.

Albert G. Lauber, Jr.:

There are a number of Court of Appeals cases involving banks’ claimed setoff, where the bank claimed it had a right to set off its claim against the account, and the courts held that as long as the guy could withdraw the money the bank had to pay it out, and the bank could then assert its setoff claim in a wrongful levy action later on.

Byron R. White:

Well, what if he writes a check, what if he writes a check on the account for his tax, and the co-depositor finds out about it and goes to court for an injunction and the bank is ordered not to pay it, not to honor the check, because he had no right to–

Albert G. Lauber, Jr.:

Then I would agree we couldn’t levy.

If his right to withdraw was restricted, either by a court injunction or by some annotation on the signature card–

Byron R. White:

–Well, what it’s restricted by is if somebody else has an interest in the account.

Albert G. Lauber, Jr.:

–Well, they have achieved–

Byron R. White:

He doesn’t own all the account, or any of it maybe.

Albert G. Lauber, Jr.:

–Well, but what restricts his right to withdraw the money vis a vis the bank is an injunction barring the bank from paying the money out to him.

Sandra Day O’Connor:

Mr. Lauber, didn’t the Court of Appeals hold in effect that Arkansas law did not give the taxpayer a right to withdraw the money, that it gave the bank a defense if it paid it out, that’s all?

Albert G. Lauber, Jr.:

But our position is that Arkansas law doesn’t govern whether what Roy had is a right to property within the meaning of the relevant Revenue Code provisions.

And those words appear in the federal statute, and our position is, under this Court’s decision in Bess and other cases, the right to compel a bank to pay you money is a right to property that we can levy on.

And if other people have claims, they can come in later and they’ll fight it out.

Thank you.

Warren E. Burger:

Mr. Wynne.

Terry F. Wynne:

Mr. Chief Justice and may it please the Court:

The issue is slightly different from that which the Government has posed to the Court.

The issue is whether the National Bank of Commerce is personally liable to the IRS for refusing to honor the notice of levy served upon it.

And to determine whether NBC is personally liable or not we have to do a two-step review.

The National Bank of Commerce would have to honor a levy if it were in possession of property or rights to district court belonging to Mr. Reeves.

Sandra Day O’Connor:

Mr. Wynne, do you think if the bank had just gone ahead and paid the check to the IRS when the levy was made, that the bank would have had a defense as against its depositor, the taxpayer, and his wife and mother?

Terry F. Wynne:

I do not have any Arkansas case law or statutory law that protects the bank.

Sandra Day O’Connor:

Well, you have that statute that says the bank is protected.

Terry F. Wynne:

But only from payments made to co-depositors.

If it honors withdrawal requests of any depositors, it is protected from liability to co-depositors.

Terry F. Wynne:

But the IRS is not a co-depositor on this account, and in that sense the National Bank of Commerce has no assurance from any state authority that it would not be exposed to that liability.

So we do a twofold inquiry to determine if National Bank of Commerce can be personally liable.

First we determine whether it’s in possession of property or rights to property belonging to Mr. Reeves, and we look to state law to determine that.

And the answer to that first inquiry is, no, we’re not in possession of any such property or rights to property.

Warren E. Burger:

What if, as one of the questions put, the taxpayer here had written a check on the account or got a draft from the bank out of the account and paid it to the treasury.

Would the other two joint owners, joint tenants, have any claim against IRS?

Terry F. Wynne:

They wouldn’t have any claim under the particular statutes for a wrongful levy of any nature.

Warren E. Burger:

Would they have any kind of a claim?

Terry F. Wynne:

I don’t… of course, I can’t speak for the negotiable instruments laws that might be applicable to the check itself, but that is a potential conversion of those funds, and conceivably then the co-depositors could pursue their remedy against both the taxpayer and the IRS.

Beyond the question of whether Mr. Reeves owns property or has a right to property, to impose personal liability we’ve got to determine the value of that property.

So even if you accept the Government’s argument that this right to withdraw, better called a power to withdraw because it’s not necessarily a right if it’s the co-depositor’s own money, but if he does have a power to make withdrawals which would be honored by the bank, what’s that worth?

What’s its value?

That’s got to be determined to impose liability on the National Bank of Commerce.

The first place to look to answer the first question I posed is, of course, the state law, and we look at first the–

Thurgood Marshall:

Well, just one moment.

On the of Commerce, could this man draw it all out?

Terry F. Wynne:

–The National Bank of Commerce was required by statute to honor withdrawals made by him.

Thurgood Marshall:

He could have withdrawn the whole thing himself?

Terry F. Wynne:

Yes, he could.

Thurgood Marshall:

At any time, and that rule of the law, either way it was the same?

State law or the rule of the bank were both the same?

Terry F. Wynne:

That’s right.

We would honor any withdrawal request from Mr. Reeves to the full balance of the account.

Warren E. Burger:

You’d honor it from any one of the three, would you not?

Terry F. Wynne:

That’s correct.

Warren E. Burger:

They have each absolute control over the total?

Terry F. Wynne:

Vis a vis the bank.

Warren E. Burger:

How about each other?

Terry F. Wynne:

To the extent of being able to withdraw all the moneys from the account, each of them did have that power to make the withdrawal request.

But to the extent of retaining the sums once they got the money in their possession, we don’t know that.

Thurgood Marshall:

It’s the first one that gets there would get it.

Terry F. Wynne:

The first one that got there would get it.

Thurgood Marshall:

And the other two had no rights after that?

Terry F. Wynne:

They would have the rights to conversion and their ownership rights under Arkansas law, but they would not have any action against the bank because the statute authorizes the bank to make the payments and protects the bank if it does.

Now, that of course is clearly… that approach to the analysis of the joint account was clearly set forth by the Arkansas Supreme Court in Black versus Black, where it determined that these joint account statutes were passed for the bank’s protection and did not create any title or any ownership.

So the simple fact that Mr. Reeves is named on this joint account under Arkansas law creates in him no property right.

Harry A. Blackmun:

Mr. Wynne, maybe I missed something.

Why did you say that these statutes were passed for the bank’s protection?

Terry F. Wynne:

Reading that from black versus black, by the Arkansas Supreme Court, in which the court specifically said that these statutes invest no title, but were passed to protect the bank honoring the withdrawal request from the one co-depositor.

Harry A. Blackmun:

Couldn’t they have been passed for the convenience of the depositors?

Terry F. Wynne:

They could have been passed for that reason.

They could have been passed for several other reasons.

But I have only the Arkansas Supreme Court’s decision to rely on.

Harry A. Blackmun:

Is that statement exclusive or inclusive?

Terry F. Wynne:

I think it’s exclusive of the question of whether the joint statute, joint account statute, created any title or ownership, as it specifically excludes title or ownership.

But it is not exclusive of anything beyond that particular exclusion.

Black v. Black specifically addressed the question of whether money in a joint account… the fact that money was in a joint account determined any ownership interests, that one fact alone.

And in Black v. Black the supreme court said it does not.

You have to look beyond the face of the account to determine the agreement of the parties, where the deposits came from, and those sorts of facts.

And that was also recognized by the district court and the Eighth Circuit in its opinion.

Those are the only things we do know at this point, is that Roy Reeves is named along with Ruby and Neva on two joint accounts, a savings account and a checking account.

We know that under Arkansas law NBC would be required to honor withdrawal requests made by him.

We don’t know anything more.

That was the analysis that the Eighth Circuit used in looking at whether there was a state-created property right which is required by the decisions of this Court, and the Eighth Circuit correctly concluded that there has been no establishment of any state property right.

The Government has failed to provide us enough evidence or information to determine whether there exists any property or right to property, and that’s their burden.

The Eighth Circuit then correctly found itself to be in accord with Stock Yards Bank, which was a very similar situation dealing with savings bonds instead of a joint bank account.

But in Stock Yards Bank the savings bonds were held in joint names of husband and wife, and the federal regulations applicable to them said that invests no title, that you have to look to the agreement of the parties.

It’s identical to Arkansas law in that concept.

And in Stock Yards Bank the Sixth Circuit found that the simple fact of joint title did not determine any property interests or rights to property.

So we have two circuits in accord at this point.

Terry F. Wynne:

As the Eighth Circuit noted, its decision is not going to be in conflict with any other circuits, and it specifically reviewed decisions of the Second, Fifth, and Ninth Circuits, which the Government, by the way, submits are in conflict.

But the Second Circuit case of U.S. versus Sterling National was an offset case.

The bank claimed not to be required to honor the levy because it had a right of offset or set-off against the account deposits.

There was no question as to the ownership of the deposit itself.

The tax debtor owned all of the deposits.

Similarly, in the Fifth Circuit–

John Paul Stevens:

Mr. Wynne, could I ask you a factual question.

Maybe this is outside the record, but there have been apparently millions of these levies over the past several years, and I guess your bank is a big enough bank to have gotten a lot of them.

Has your bank changed its policy recently and just decided not to honor the obligations to the Government?

Terry F. Wynne:

–Our bank is a relatively small bank, but since 1959 we’ve taken this posture.

My partner Mr. Matthews rendered that opinion based on Stock Yards Bank at that time.

Our bank only gets three to four levies of a joint nature per year.

We get additional levies, but normally it’s clear how the title is held or the tax liability is joint.

John Paul Stevens:

And the bank has always taken the position that they won’t honor a levy like this?

Terry F. Wynne:

That’s correct.

Now, the only pertinent cases that I’ve been able to review or that the Government has produced in similar situations where the Government or IRS was attempting to levy on joint accounts, the Government either accepted or was required to bear a burden of showing more than the joint account title.

And the cases specifically cited by the Government are U.S. versus Equitable Trust, District Court of Maryland… the Government produced the agreement of the parties and produced deposit records, produced testimony of witnesses to establish the ownership of the money in the joint accounts.

And this is what we say is the Government’s burden in this case.

It’s got to demonstrate whose money is in this bank before we’re required to honor this levy.

It’s a burden that we can’t accept, nor can we carry, because we have no way of knowing.

William H. Rehnquist:

Well, in effect you’re saying that the administrative levy proceeding just won’t be allowed in this situation, because a levy I suppose always acts ex parte, until you can have a hearing at any rate?

Terry F. Wynne:

That’s right, the levy procedure is just not… it’s ill suited for this.

Perhaps a Section 7403 lien foreclosure proceeding or an equity procedure is much better suited for purposes of–

William J. Brennan, Jr.:

Has your bank been involved with many 7403 proceedings?

Terry F. Wynne:

–Never had one, Your Honor.

William J. Brennan, Jr.:

Never had one.

Do you know of any?

Terry F. Wynne:

Do I know of any that have occurred?

William J. Brennan, Jr.:

Yes.

Terry F. Wynne:

Anywhere?

William J. Brennan, Jr.:

Yes.

Terry F. Wynne:

Tyson versus U.S. as I understand it was a 7403.

William J. Brennan, Jr.:

I can’t imagine why the Government would ever resort to 7403 if they’re right about the availability of the administrative levy.

It’s too easy.

Terry F. Wynne:

It is.

It’s very easy for them.

But as noted in the Stock Yards Bank case and as noted in this Court’s decision in Rodgers, the levy procedure is just not very well adapted to determining property interests, and our case is a perfect example of that.

We’ve got an Arkansas law that says this demonstrates no title.

William J. Brennan, Jr.:

I take it the bank would have to be a party to a 7403, would it not?

Terry F. Wynne:

I believe so.

Harry A. Blackmun:

Mr. Wynne, with all this in the background, why does your bank indulge in or permit joint accounts at all?

Terry F. Wynne:

Well, they call themselves a full service bank, and we have requests from our depositors and we’re making the services available.

Harry A. Blackmun:

Because your competition does?

Terry F. Wynne:

Competition.

That’s the competitive market, of course.

We continue to make these available.

Harry A. Blackmun:

Because the customers want it, really?

Terry F. Wynne:

That’s right, that’s right.

They want it for the convenience of having a husband and wife each draw checks, or perhaps this was a mother, son, and daughter-in-law, that convenience.

But that convenience doesn’t tell us ownership, and it therefore doesn’t tell us what’s subject to levy and it doesn’t tell us what National Bank of Commerce should have given them, if anything.

And accordingly, it shouldn’t put National Bank of Commerce in a liability posture.

Harry A. Blackmun:

But if a check came along signed by Roy, is it, not for taxes but just drawing everything, your bank would pay it out without any question as to whether Neva or Ruby owned it?

Terry F. Wynne:

That’s correct.

That would be our statutory obligation, to make that payment on his withdrawal request.

Warren E. Burger:

Would it be any different if it was a check payable to the IRS?

Terry F. Wynne:

It’d make none at all.

That would then be the classic situation described in the Arkansas statute, a withdrawal request or a check written by a co-depositor.

Harry A. Blackmun:

But you draw the distinction between what the Chief Justice has just indicated and the levy?

Terry F. Wynne:

I do.

The IRS, while it may stand in the shoes of a tax debtor, is not the tax debtor.

Terry F. Wynne:

And for purposes of Arkansas law we are only insulated from any liability if we honor the request of a depositor.

We don’t think that we would be insulated from a levy payment to the IRS.

More importantly, let me focus again on this case, which is a personal liability action, as opposed to a levy, as far as a levy enforcement procedure.

The burden again is proof that we were in possession of property or rights to property belonging to the tax debtor, and there’s absolutely no proof of that.

Warren E. Burger:

If you had honored this check, your bank had honored this check, would the other two non-taxpayers have any action under Arkansas law against the bank?

Terry F. Wynne:

We feel that they would because it would be a breach of the contractual agreement between depositors and the bank.

They place that–

Warren E. Burger:

I thought you said earlier that you’d honor any check that came through.

Terry F. Wynne:

–Well, I misunderstood your question, Mr. Chief Justice.

Warren E. Burger:

My question now is, having… as you’ve said a few minutes ago, the bank had honored a check payable to IRS for exactly the same dollar amounts as are involved here.

Then would the other two joint owners, joint tenants, have a claim against the bank under Arkansas law?

Terry F. Wynne:

No.

If Roy Reeves had written a check payable to the IRS for his tax debt–

Warren E. Burger:

Because each of the three had authorized every one of the three to do precisely that.

Terry F. Wynne:

–That’s correct.

Well, let me re-comment on that.

We don’t know whether they had authorized him to write checks and pay the IRS.

We simply know that–

Warren E. Burger:

Well, you know that they authorized the bank to honor any check that any one of them signed, do you not?

Terry F. Wynne:

–Well, we simply know that he is named on this joint account, and the statute allows the bank to recognize those.

But we don’t know whether Neva and Ruby have told Roy, you can draw checks on this account, or not.

William J. Brennan, Jr.:

But your point, I gather, is that Arkansas bank law obligates the bank to honor any check drawn by a depositor on the account, but there’s no obligation under Arkansas law to pay anything out on the basis of an administrative levy to the IRS because it’s not a depositor on the account.

Terry F. Wynne:

That’s exactly right, that’s exactly right.

If the Court has no further questions, I’ve concluded.

Harry A. Blackmun:

Does the record contain the agreement of deposit?

People normally sign a card setting forth the conditions of the deposit.

Does the record contain that?

Terry F. Wynne:

It does not.

Thank you.

Warren E. Burger:

No, your time has expired, I guess.

Terry F. Wynne:

Thank you, gentlemen.

The case is submitted.